Internationally, criminal penalties for cartel activities are a growing legal phenomenon because fines imposed often do not serve as adequate disincentives for such activities, says law firm Deneys Reitz associate Rosalind Lake.

However, in the South African context, this type of legislation may have the opposite effect by dissuading directors and managers from assisting the Com-petition Commission with the information and advice that has served it well in its prosecutions thus far, she explains.

“The Competition Commission has been successful in the prosecution of companies primarily owing to the cooperation of companies and managers. As soon as individual managers and directors are at risk of criminal prosecution, they will stop talking and stop cooperating with the Commission. They are perfectly entitled to do so as it would fall under their right not to make self-incriminating statements,” she explains.

The Competition Amendment Act of 2009, which introduced personal liability, has not yet come into force but it is worth noting that fines have steadily increased and many companies, when faced with the cost of defending complaints, settle matters purely to get rid of the case and to spare management time that would be wasted in defending such a case, she says.

The strength of, and public support for, the commission means that companies are often loath to go up against the competition authorities, particularly because companies against which complaints have been brought are usually seen as guilty until proven innocent in the public eye, and any attempts to defend themselves may be perceived as admissions of guilt. Owing to significant reputational damage associated with investigations, South African companies are doing everything they can to avoid any contravention of the Act, she explains.

However, cartels, when run effectively, are highly profitable. Consequently, the penalties, the risk of getting caught and the damage to companies’ reputations must exceed the advantages gained from remaining in a cartel to dissuade companies from colluding. This has led to the international trend of criminalising collusion.

Personal Liability

Part of the reason personal liability in South Africa may not have the desired effect is that the country has a concen-trated economy. The economy is characterised by monopolies or incumbent suppliers and a limited number of competitors in those markets that have been traditionally heavily regulated by government.

This has resulted in a higher prevalence of cartel investigations than in other countries. In fact, it has been noted that the South African commission has received more applications for leniency for cartel conduct than regulators in any other country.

“Conduct that is now outlawed by the Competition Act was in the past mandated by government, such as the exchange of pricing and volume information between competitors in order to ensure food supply and sufficient resources in the country,” she explains.

“There are many aspects of the South African Competition Act that, compared with other jurisdictions, remain in their infancy and still need to be tested before our competition authorities. We are of the view that the Competition Amendment Act may be premature because of its potential unintended effects,” Lake says.

In South Africa, the commission is still in the process of negotiating with the National Prosecuting Authority to develop a policy to deal with criminal cases under the competition laws. Further, the tribunal and commission rules of procedure need to be updated in accordance with the changes to the legislation, she notes.

“Consequently, there have been delays in the implementation of the Competition Amendment Act of 2009, although it is [expected] to come into force this year, even if only on an incremental basis,” Lake concludes.